Delta. Describe the elements of the Fraud Triangle that apply to this case. Assume you are the perpetrator. Is there a better way to perpetrate this fraud? If there is, describe your method. Specify practical recommendations for the client to prevent this fraud from occurring in the future.
The first element of the Fraud Triangle in the case of ZZZZ Best, case 1.9 is Incentives/Pressure.
As a result of the pressure placed on a person who is only a teenager in a tough business, one who faced a lack of working capital, the lack of assets and little profit make it difficult for a person of this stature to achieve financing to produce cash flow for sustaining of operations. One quickly realizes that through fraud a person could obtain funding to sustain operations. Through credit card fraudulent charges and check kiting and to stage theft to fleece one’s insurance company, producing more cash flow, one can raise quick and easy money. Through this experience with these types of fraud, it is realized quickly that one could bypass internal controls and create assets to bolster the company’s financial statements. From this point, with beating the system proving to be so easy, the next step is to forge friendships and acquaintances with people whom you vision could help further the cause of bolstering one’s company. Once a stable of confidantes are arranged, a gaining of trust is imperative. Through charm and charisma, not to mention financial incentives, it is not difficult to get people to do what you want them to do, exploiting their livelihoods for the betterment of one’s self. Creating fictitious contracts and having the people in your network lend credibility when being audited helps a person to generate paper profits and revenue streams to show, on paper at least, that the company is growing by leaps and bounds. The next step is to expand the initial cutthroat business to other areas, leading the public to believe that through expansion, the company shows signs of flourishing, while continuing with the fake contracts of a new phase of business, in this case, restoration. Once the company shows strong financial statements, albeit personally held, it proves to the banks that the company is growing and is adding business lines it becomes evident that there is not a need to nickel and dime it in the original business, but seeing as how the new business lends it self to easier and greater rewards through fraud, this will be the path to gain more and more riches for one’s self. With these conditions of fraud now in place, there is a new pressure that emerges, and that is of keeping up status for those that have placed you on a pedestal as a model businessman. That coupled with how easy it has become to get financed through fraud, there is no turning back now. The second element in the fraud triangle is Opportunities.
As mentioned above in Incentives/Pressures, the opportunities have presented themselves in such a way that to not exploit them would seem criminal in and of its self. There is a need that has arisen to hold steady the influx of funds into this business and through fraud; we are able to do so and very successfully. The initial wave of contracts has gotten the company to an excellent standing in the community and has garnered national attention in the form of showcasing an American success story as the youngest CEO in the nation with a hugely successful business. From this point, it only makes sense to take the company public. This would allow the company to rake the pockets of Americans all over the nation who foolishly invest in this fictitiously funded company.
The opportunity to further pull the wool over the eyes of the auditors has become easier and easier as one has become privy to the ease of exploiting an auditing weakness, and that is difficulty in evaluating accounts receivable for a company that amounts to being...